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Technology Investment and Economic Growth

Investment in technology, a main factor in economic growth, is increasing in the United States, and in most developing countries. Take a look at modern day devices, for example. Smart phones, referred to as cell phones back in the day, are a simple case of how far investment in technology has come. Reduced dimensions, increased processing power, higher screen resolution, you name it. Many components within smart phones require different fields of study, and to each field its own amount of money invested to its development. Moore’s Law states that the number of transistors on integrated circuits doubles roughly every two years. This aspect of technological progress is important, as capabilities of many electronic devices are associated with Moore’s Law. As you probably noticed over the years, this is why our computers, TVs, and phones are getting smaller. Moore’s Law can be demonstrated by the graph below:

But what exactly does this have to do with economic growth? One way technology is developed is through investment in human capital. Therefore, the more our labor force is engaged in research and development, the more technology can be innovated to be more efficient and cost effective. The effect of technology progress on human capital investments has increasingly become an important topic. So why has our continued investment in technology bettered our economic growth? A few reasons to consider follow:

Better Quality for Cheaper Prices:

One of the main drivers for those engaged in research and development is finding ways to cut cost while increasing value. Increasing computational power, as well as increasing quality, is important. However, if technologically cutting-edge products are exorbitantly expensive, then it is unlikely for it to make a significant impact on society as whole due to its price, other than saying we have the capability to produce it. For this reason, it is interesting to look at product quality versus price. Ray Kurzweil is known for his analysis in the change of price and quality for computational machinery since the 1900s. He analyzed improvements of circuitry, as well as researching obsolete components, such as earlier transistors, relays, and electromechanical computers. He found that Moore indeed made an effective prediction of the future. The exponential growth rate that Moore predicted circa 1960 was the driver of technological progress since the beginning of the century. To relate back to economics, the following graph shows the computer power that consumers could purchase for a price of $1000.

Analysis of the graph shows that from 1900-2010, consumers have been able to purchase more computational power for the same relative price of $1,000, holding inflation and other factors constant. Of course, $1000 back in 1950 is not the equivalent to $1000 today. However, for that same price, the gap between computational power amid years 1960 and 2010 for example, is quite large. It appears due to the demand for faster technology that investment in technology programs increased, which allowed for more innovative tech to be bought with the same price. As stated above, this increase knowledge of technology can be attributed to investments in human capital, such as education and research and development of electronics, telecommunications, and manufacturing processes. All of these in turn lead to increased economic growth, due to the amount of output that can be produced via better means of technology.

2. It is Increasing Productivity and Education

Because so much of our daily life involves some sort of digital interaction, it is vital that training to become technologically proficient starts at an early age. Currently, elementary and middle schools have children exposed to computers, iPads, and other devices in hopes for students to become tech savvy at an early age, perhaps to induce the likeliness of pursuing a tech inspired career path. In a sense, funding public education to enhance computer and electronics skills is an investment in human capital because it prepares young students for more advanced education. Even through my personal experience at JMU, the degree of challenge in classes is steadily increasing due to demand for the top percentile of students that can research and develop next level tech. My guess for future generations is that technology oriented classes will reach new degrees of difficulty in order to pursuit higher levels of computational power, for example, quantum computing and Nano-technology. At our current stage now, we see increases in productivity through automation, machinery, and artificial intelligence, as long as capital per worker remains at appropriate levels. The following graph shows percent changes from the previous year in productivity within private sector firms in the United States.

The graph is a bit confusing to follow, because there appears to be no apparent trend in productivity. We can observe from 1990 to 1992 the productivity index slightly drops, then shoots up, then drastically falls. From 2008 to 2011, there is a sharp increase, followed by a slight drop, then a plummet in 2011. Although there is no clear cut answers for the highs and lows, an interesting point to consider on the graph is 2008. The great recession of 2008 would see countless layoffs in the U.S. Based on the chart, it can be concluded that productivity in the private sector during 2008 skyrocketed due to these jobs losses. Thus, the increased productivity came from employers demanding more output from employees, seeing as the economy was in a rough state and couldn’t afford to hire additional labor.

Technology investment is relevant in the chart, because from 2010 onward, the productivity index is more constant, insinuating that processes to increase productivity may have stagnated. A major factor in the driving of technological advancement is money invested in its research, and in order to push past our current level, more money is needed. This includes the money invested in academia (as mentioned previously within public education) as well as proper capital needed to support workers. However, this also includes the supply PhD candidates that perform the research needed to advance these technologies. Essentially, once enough money is raised/invested to fund the programs for research, scholars will cooperate with tech experts to develop the technology. Once it is developed and accessible in the workforce, productivity will see further increase, holding other factor inputs constant. In turn higher level of productivity will increase economic output.

Conclusion:

Seeing as pursuing a career within the technology field is my intention, it is important to understand technology’s relationship with economic growth, human capital, and education. Though our education system, we have been able to effectively develop and train our work force to produce new technologies, so long as appropriate investments were made to continue funding to tech programs. Although we have come long ways since the 1900s in terms of digital devices, the next steps in theory are: to learn how to fully harness the energy of natural processes in order to produce the most efficient technologies, utilizing quantum computing to further speed computation processes, and using nanotechnology to reduce the space needed to hold more data. Once these changes take effect, productivity in the workforce has the potential to increase, which will increase economic output as a result. In order to maintain this process of technological innovation however, we must be mindful to continue to increase education standards and funding for programs through the years. Human capital/R&D in technology are the critical steps for economic growth, which lead to a more productive workforce.